Supreme Court guidance on Damages in Lieu of Injunction

Rights of Light has accelerated to the top of a developer's agenda in recent years due to the Court of Appeal decision in Regan v. Paul and the High Court decision of HKRUK II (CHC) Limited v. Heaney. In these cases the judges awarded an injunction preventing development infringing light. The Courts refused to award damages instead of injunction. This was mainly due to a rigid interpretation of the key old case of Shelfer v. City of London Electric Lighting Co. Damages in lieu were refused unless all four "Shelfer" tests were satisfied – namely:

1. The injury was small;
2. The injury was capable of being estimated in money;
3. The injury can be compensated by a small money payment;
4. It would be oppressive to the developer to grant an injunction.

This rigid application has resulted in major headaches for the development industry and has proven costly with parties enjoying a right of light seeking to maximise their strong position to extract a large compensation payment. Due to the protestations of the development community and representative bodies, such as the BPF, the Law Commission carried out an extensive consultation on rights of light with a view to publishing its findings by the end of 2014.

The decision in the Supreme Court noise nuisance case of Coventry v. Lawrence is a Trojan speedway bike that will provide a major boost for developers with rights of light issues.

Shelfer Shelved

The Supreme Court has been highly critical of the 'slavish' adherence to the Shelfer tests – Lord Sumption stating, "it is unfortunate that it has been followed so recently and slavishly".

Giving the leading judgment, Lord Neuberger held that the correct approach, "to be adopted by a judge when being asked to award damages instead of an injunction should… be much more flexible than that suggested in the recent case of Regan... The court's power to award damages in lieu of injunction involves a classic exercise of discretion, which should not, as a matter of principle, be fettered, particularly in the very constrained way in which the Court of Appeal has suggested in Regan".

The impact of all of this is that whether damages are awarded instead of injunction will now be more a matter of judicial discretion rather than a strict application of Shelfer. Shelfer principles may still be applicable in the exercise of discretion, but all four tests do not need to be satisfied and the tests themselves will not be a fetter on the exercise of the Court's discretion.

Accordingly, Regan and Heaney would most likely be differently determined had they been heard after this Supreme Court judgment.

This is a "pop the cork" moment for developers and their financiers. Whilst an injunction remains the prima facie remedy for interference with a property right, there clearly will be more flexibility applied to whether damages in lieu should instead be awarded. Judicial discretion may (as it is discrete) also account for developer behaviour and the public interest in development. The existence of a planning permission may well be relevant to the remedy the Court grants.

Property Rights – Are they Sacred?

The case does highlight the question as to whether or not a property right being protected by an injunction as the default remedy is a sacred cow. The determination does suggest as much whilst allowing for the flexible exercise of discretion as to whether or not to grant the award. However, Lord Sumption in particular has left this issue open. Commenting on a very different England to that of old, he stated:"The whole jurisprudence in this area will need one day to be reviewed in this court. There is much to be said for the view that damages are ordinarily an adequate remedy for nuisance and that an injunction should not usually be granted in a case where it is likely that conflicting interests are engaged other than the parties' interests. In particular, it may well be that an injunction should as a matter of principle not be granted in a case where a use of land to which objection is taken requires and has received planning permission".

Their other Lordships were not expressly prepared to go quite so far (Lord Mance in particular), but it is evident that the door is open for the Court to one day investigate the appropriateness of an injunction as a remedy in nuisance cases.

Law Commission Consultation

The judgment will also be of interest to the Law Commission who proposed a Shelfer shelving test of whether the grant of an injunction would be "disproportionate". This does not appear to be out of kilter with the exercise of discretion and it may be that in respect of this issue at least the Supreme Court has made the Law Commission's job easier.

Basis of Damages

The Court also looked at the basis upon which damages in lieu of injunction should be payable. The Court did not hear full argument on the issue, but the position remains that where there is a clearly defined interference with a property right, it is not difficult to calculate a hypothetical purchase price to secure the relaxation of the ability for the claimant to obtain an injunction. This is relevant to rights of light cases, though the basis of calculation may revert to diminution in value where the interference is harder to define or measure.

Clarity on Nuisance

Their Lordships also confirmed that in principle a right to cause continual nuisance could be acquired prescriptively, including where there were periods of 1-2 years of no nuisance occurring.

They further held that "coming to the nuisance" is not a defence save where the claimant alters their position such that the defendant's pre-existing activity becomes a nuisance.

When assessing the character of the locality where the alleged nuisance is carried out, the character is to be assessed with the defendant's activity carried out but not to the extent where it causes a nuisance. Therefore, a speedway track would form part of the character of a locality save to the extent that its operation did not cause a nuisance.

Finally, the Court confirmed that the grant of planning permission itself will not benefit a defendant faced with a nuisance claim. The grant of permission is a public matter, unconnected with private rights and is not a licence for activities that constitute a nuisance, though, as seen above, the grant of planning permission may well be relevant to the remedy to be awarded.

Summary

In summary, the Supreme Court has handed down a seminal judgment on the law of nuisance which emphasises judicial discretion and rejects the slavish adherence to Shelfer that has so impacted on the development industry at a time when it could have done without it. This can only be good news for developers as it will be harder for an adjoining owner to claim an entitlement to an injunction and will see schemes progressed with adjoining owners adequately compensated by a monetary payment. Whilst this may still be on a "release-fee" basis, this can at least be quantified and factored into the development's budget. There is at last, therefore, light at the end of the tunnel.

If you require further information, please speak with a member of our team or your regular contact at Dentons.